2. Robbins Co. has been producing a part for a camera they manufacture. The cost

Question

2. Robbins Co. has been producing a part for a camera they manufacture. The costs for this part are as follows: (3 pts) Fixed costs $392,000 $112,000 28,000 Total variable costs Units produced Robbins has an opportunity to purchase this part rather than manufacture it. To purchase the part will cost $3 a unit. If the part is purchased, fixed costs will be reduced by 20%. Should Robbins Co. make or buy this part? Show how you arrived at your decision using the chart below. Decision (circle one) : BUY MAKE To Make To Buy Fixed Costs Variable Costs Purchase Cost Total:

Explanation / Answer

The company should buy the product.

Notes:

1. Variable cost will not be incurred in buy option as variable cost is directly linked to production quantity. In cade of no production, this will be zero.

To make To buy Fixed cost $ 392,000 $ 313,600 (392000 X 80%) Variable cost $ 112,000 0 Purchase cost 0 $ 84,000 (28,000 units @ $ 3 per unit) Total $ 504,000 $ 397,600

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